Kickstarter, Crowdfunding and the Startup Bubble

With the growing interest in crowdfunding and the belief by some it will eventually hurt the angel investor, I wanted to get Cuban's opinion on the matter. His take was that Kickstarter should become a requirement for almost any entrepreneur starting a business.

Here's why:

It's a way for you create demand and sell the product without giving up any equity. That is a compliment to what an investor might do. In terms of PE (price to equity), there are strategic investors and then there's just money. I'm not a big fan of money investors, which is what most angel investors turn out to be, because they just want their money back. I try to be very strategic, I try to add value, or I don't make the investment.

We went on to talk about the current state of valuations for technology companies and the resulting impact on the broader technology investing climate:

There's something going on right now that is really scary. Saw it first in Silicon Valley. There is a huge bubble in valuations. That bubble has created an environment where companies are looking for funding and have no plans on creating a cash flow based business and returning cash to investors and it's all about exit strategies because valuations have gotten so high that it's almost impossible to do a cash on cash return.

That's created a problematic environment for investors and entrepreneurs because they get themselves where they are looking for the next funding rather than to increase cash flow. In my mind, it's worth than the tech bubble in the stock market because there's less visibiity and less liquidity for all those shares, so you have a very finite number of potential investors already paying extraordinary valuations and you're starting to see those collapse in the valley and that's having a trickle down effect around the rest of the country.

Impact of Internet (Over-the-Top) Video

Cuban has been very vocal on his own blog about the relative value of traditional broadcast to Internet/over-the-top video delivery, and he reiterated this belief in our conversation.

When the conversation turned towards media storage in the cloud, he stated his belief that traditional video delivery players will be just as likely to take advantage of this as Internet upstarts.

"There's nothing that happens on YouTube or anywhere online that a television distributor like Comcast can't also do. They'll take advantage of the same technology. But that doesn't create an advantage for online, it creates a huge disadvantage (for Internet video companies).

Social TV and the Value of Live/Broadcast TV

We talked about social TV and the water cooler conversation that happens on social media around TV content. Cuban expressed his skepticism about discrete second screen apps for social TV, which he proclaimed essentially "dead". His reasoning was the passive, lean-back nature of watching a show, which means consumers only want to put forth so much effort. Perusing Twitter and Facebook on a mobile device while watching a show is about as much effort as a standard consumer is willing to do on the second screen.

(It should be stated that Cuban was very specific in his skepticism about second screen apps, and he didn't imply that he doesn't see value in first screen social interaction, as his own investment in Flingo in 2012 would indicate).

We then talked about social TV analytics, where Cuban pointed out the value of the zero-latency experience of Twitter and broadcast TV.

800 million people watched Gangham Style. No two people tweeted about it and talked about their experience at the same time out of those 800 million views. With Shark Tank or AXS TV, we're live, relatively speaking, and we're interacting and we're communicating, which creates a different type of viewing experience. This is why you're seeing such a trend towards live TV...

The value to a consumer (of live TV) is not just the value of the programming, it's the eventizing of the program itself so you're expeirencing not just by yourself, not just with people in your house, but with people around the world watching it at the same time.

Book Publishing and The Value of Audience

Cuban decided self-publish his own book and sidestep the traditional publishing channel. When I asked him about this decision, he said he was able to do so because he already had an existing platform for promotion, something many self-published authors don't.

It's the gathering of the audience always will be expensive because the simpler it is to communicate, the harder it is to reach people.

Cuban stated he believed traditional publishers will survive, in part because he thinks there will always be a segment of the population who like physical books.

Shark Tank and His Portfolio Management Process

I'm a big fan of Shark Tank, and one of the things I've wondered about is the criteria Cuban uses when evaluating companies to invest in.

He said that he usually looks for a business or individual that he can add value to. Conversely, Cuban said he occasionally identifies something about a creative person which he thinks will add value to one of his existing businesses, such as was case with the "I want to draw a cat for you" business Cuban invested in.

I've often wondered how someone as engaged with his portfolio companies as Cuban is manages to remain so as his portfolio grows. According to Cuban:

It's something I'm struggling with right now. I'm hiring a lot of people to manage the Shark Tank businesses, and I approach business from a process perspective in a very specific way. I don't do meetings, I don't do phone calls. This is a rare podcast I am doing. 99.99% of the things I do are via email so while kids are asleep, I'm on a plane, I can get my work done.

Cuban talked about how he tries to make the managers of his various businesses report to him in a way that makes it manageable by putting things in "bite-sized chunks" which he can respond to in quick fashion.

I try to convey to all those entrepreneurs I'm involved with, that you send me your weekly report on Friday or Monday, you put the bad news first, you ask all your questions in there and I will respond to them. If there is something pressing, send an email and I will get back to you. That way everything is in bite-sized chunks, it's almost like my own Amazon Mechanical Turk.